Deed in Lieu of Foreclosure
Deed in lieu of Foreclosure or DIL is when the borrower gives back the secured property to the lender. When a homeowner is in danger of losing their home to foreclosure, they will offer the lending bank the deed to the home to stop foreclosure proceedings. The bank is not obligated to accept the Deed in Lieu of Foreclosure but, oftentimes it is a mutual agreement.
Before a Deed in Lieu of Foreclosure can be approved, eligibility of the homeowner must be determined. The homeowner will be working with the Bank Loss Mitigator and must provide information explaining the situation that caused default on the mortgage. Eligible situations include death, loss of income, job transfers, or divorce. Proof of these circumstances must be provided to the Loss Mitigator. The mortgage payments must be 31 days or more in arrears and the property must be the borrower’s primary residence.
Before entering into a Deed in Lieu of Foreclosure, all other avenues must be exhausted. Try consolidating debts to reduce monthly payments. Negotiate with the bank holding the mortgage note for reduced payments or loan modification plan. Refinancing at a lower interest rate will extend the length of the loan and may reduce payments.
When a compromise cannot be reached, ask the Bank Loss Mitigator about Deed in Lieu of Foreclosure. Before accepting a Deed in Lieu of Forlosure the lending bank will perform a title search on the property. The title search shows the lending bank if there are tax or creditor liens, second mortgages, home equity loans or outstanding judgments attached to the realastate.
The priority of liens on real estate is determined by the date they were recorded. Generally, the first mortgage on a property is the senior lien and others are considered junior liens. When property is foreclosed upon, junior liens are wiped out unless it is an Internal Revenue Service (IRS) lien. However, this is not true for a Deed in Lieu of Foreclosure. When the bank accepts a DIL and the property reverts to bank ownership, the liens follow and become the responsibility of the bank. These liens can add up to much more than the current market value of the property.
Oftentimes, a private real estate investor is an overlooked option for the homeowner. A private real estate investor might be able to purchase the property saving the homeowner from foreclosure or the need of a Deed in Lieu of Foreclosure.